Proliferation of Short Term Rentals and Implications for Local Zoning Regulations Planning and Zoning Section November 29, 2017

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1 Proliferation of Short Term Rentals and Implications for Local Zoning Regulations Planning and Zoning Section November 29, 2017 Jacqueline O. Kaufman Carmody Torrance Sandak & Hennessey LLP Jason A. Klein Carmody Torracne Sandak & Hennessey LLP Dwight Merriam Robinson & Cole LLP

2 Jacqueline O. Kaufman Your Presenters Jason Klein Dwight Merriam

3 Short Term Residential Rentals Part of the Trend of Sharing Transportation Network Companies Cars Zipcar Enterprise Turo Ridesharing Uber Lyft 3

4 Service Peer-to-Peer or Collaborative Consumption TaskRabbit Skillshare Goods Listia Space Airbnb HomeAway 4

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8 What are Short Term Rentals (STRs)? Tenancies of 30 days or less in residential dwelling units Typically marketed on websites like Airbnb, where residents may list their homes or apartments for rent, and travelers may look for lodging Provides travelers with a more authentic travel experience

9 2016: CT hosted 64,000 visitors via Airbnb alone 2,400 Airbnb hosts state-wide $11 million in income from Airbnb short term rentals

10 Airbnb Founded 2008, San Francisco Two roommates with air mattresses 600,000+ hosts 3,000,000+ listings 150,000,000+ guests 191+ countries 65,000+ cities 10

11 Airbnb 6-12% commission above rental 3% listing fee Profits of $3.5 Billion by 2020 Capitalized value of $30 billion 11

12 STR Residential or Commercial Use? Appellate courts in other jurisdictions have been asked to determine whether STRs are a residential, or commercial use. Property owner profits from rents earned from guests. Guests may use property in the same (or similar) way long term resident would.

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16 Morton County, ND [Breien] 16

17 Helena, MT 17

18 Grand Junction, CO 18

19 Jackson Heights, NY 19

20 Hutchinson, MN 20

21 STRs in our Neighborhoods Grandview Avenue, Stamford, CT

22 STRs in our Neighborhoods Oakland Terrace, Darien, CT

23 Recent Developments in Connecticut June 2016 Airbnb agrees to collect hotel occupancy tax on behalf of landlords. 15% tax brings in about $100 million in revenue annually. Applies to each transfer of occupancy, from the total amount of rent received for such occupancy of any room or rooms in a hotel or lodging house for the first period not exceeding thirty consecutive calendar days.

24 What Is a Hotel under State Tax Law? Any building regularly used and kept open as such for the feeding and lodging of guests where any person who conducts himself properly and who is able and ready to pay for such services is received if there are accommodations for such person and which derives the major portion of its operating receipts from the renting of rooms and the sale of food.

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26 Adams v. Lakeside Place Homeowners Association (KY) Adams rented home they owned as a STR Declaration of Covenants states that lots shall be used and occupied for single family residential purposes only. Prohibits use of lots for any business commercial, trade or other professional purpose either apart from or in connection with the use thereof as a private residence whether for profit or not. Rents declared as income; paid room tax

27 Adams v. Lakeside Place Homeowners Association (KY) (Cont.) Adams argued that STRs were a permitted use as tenants were permitted on Association property. Association believed the use to be inherently commercial, due to advertising of lot online, payment of transient tax, etc.

28 Adams v. Lakeside Place Homeowners Association (KY) (Cont.) Court ruled that STR use violated the Declaration as a commercial/business use. Upon review of the record, it is clear that the Appellants define their rental enterprise as a business, and have indeed stated as much to the IRS. They cannot now characterize it to the contrary to this Court.

29 It is not what the individuals do to occupy their time while on the property that is forbidden; it is the fact that the property is being held out for remuneration in much the same manner as a hotel or motel. Court also found a significant difference between a long-term rental of a property by one family in contrast to short-term

30 Tarr v. Timberwood Park Owners Association, Inc. (TX) Tarr rented home as STR 31 times from June to October 2014 and paid hotel tax on each rental. Association sought to prevent him from doing so, as Restrictions stated that all tracts of land shall be used solely for residential purposes.

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32 Tarr v. Timberwood Park Owners Association, Inc. (TX) (Cont.) Tarr argued that: 1. Restrictions did not explicitly prohibit STR use. 2. Property was being used for residential purposes as tenants were using the dwelling in the same manner as a long term resident, albeit on a temporary basis.

33 Tarr v. Timberwood Park Owners Association, Inc. (TX) (Cont.) Court ruled use of property as a STR violated Association Restrictions. Residential purposes has a definite legal meaning and is unambiguous. For one to use a property for a residential purpose, they must have both physical presence on the property and an intent to remain there. Without the intent to remain, Court did not believe transients use of property met Restriction s requirement that property be used for residential purposes only.

34 Zgabay v. NBRC Property Owners Association (TX) Association Declaration required that property only be used for single family residential purposes. Zgabay family rented their home and paid transient/lodging taxes on income derived from same.

35 Zgabay v. NBRC Property Owners Association (TX) (Cont.) Court found single family residential purpose had no inherent meaning. Because For Rent signs were permitted, Court inferred that rentals of any kind were permitted. Court was not persuaded by the fact that homeowner paid taxes on income derived from STRs.

36 Wilkinson v. Chiwawa Communities Association (WA) Wilkinson family rented out their home as STR Homeowners Association sought to prohibit them from doing so. Association covenants state that lots shall be utilized for single family residential use. Covenants also prohibited use of lots for industrial or commercial purposes.

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38 Wilkinson v. Chiwawa Communities Association (WA) (Cont.) Association argued that STRs were not consistent with permitted single family use and were more akin to prohibited commercial use.

39 Wilkinson v. Chiwawa Communities Association (WA) (Cont.) Court did not believe drafters of Covenants intended to prohibit STR use, and found allowing STRs to be consistent with the prohibition of commercial uses. If a vacation renter uses a home for purposes of eating, sleeping and other residential purposes, this use is residential not commercial, no matter how short the rental duration.

40 The fact that the owner earns income from the rental in no way detracts or changes the residential characteristics of the use by the tenant [n]or does the payment of business and occupation taxes or lodging taxes make the use commercial in character.

41 Is It Economic Development? PROMOTION OF ECONOMIC DEVELOPMENT THROUGH THE VISITORS INDUSTRY WHEREAS, communities throughout the United States rely on local hotel taxes to promote travel and tourism and support the local visitors industry; and WHEREAS, local hotel taxes often fund convention and visitors bureaus, convention centers, sports arenas and sports teams; and WHEREAS, local hotel taxes often support local cultural programs including music, film, gaming, visual arts, dance and more; and WHEREAS, short-term rental of homes can often be subject to hotel taxes; and 41

42 WHEREAS, short-term rental of homes can provide a flexible housing stock that allows family travelers spending longer periods of time in a community a safe accommodation while contributing to the local economy; and WHEREAS, short-term rental of homes can provide homeowners an opportunity to hold property as an investment, for a better sales market, or for future planning; and WHEREAS, fair regulation of short-term rentals ensures greater compliance and greater receipt of local hotel taxes; and WHEREAS, regulations of short-term rentals that establish a reliable way for a municipality to identify and contact the short-term rental owner, make the tax collection and remittance obligation clear and treat the short-term rental owner the same as long-term rental owners can achieve the highest level of compliance; and WHEREAS, onerous regulations of short-term rentals can drive the industry underground, thus evading local regulations and local hotel taxes; 42

43 NOW, THEREFORE, BE IT RESOLVED, that the U.S. Conference of Mayors urges support for economic development opportunities through the visitors industry by encouraging regulations of the short-term rental industry that (1) establish a reliable way for the municipality to identify and contact the short-term rental owner; (2) make the tax collection and remittance obligations clear to the short-term rental owner; and (3) treat short-term rental tenants the same as long-term rental tenants. Regulations that accomplish all three can achieve a high level of compliance, and are highly effective. RESOLUTION ADOPTED JUNE

44 What Are You Trying to Achieve with Regulation? Preservation of single-family values? Avoidance of commercialization? Better property stewardship? Protecting appearance? Density Controls Parking Management 44

45 Hartford, Connecticut

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47 Hartford, CT STR Regulation Definition: The temporary rental of part or all of a property to any temporary renters for no more than 21 cumulative days during any 6 month period, with no property being used for such temporary rental no more than 3 times during any 6 month period.

48 Permitted as an accessory residential use in Downtown, Main Street, Commercial-Mix, Multi-Use, Neighborhood-Mix and Neighborhood Zones. Requires zoning permit. Anyone wishing to operate STR for longer period of time may do so via Special Permit approval.

49 Hartford, CT STR Regulation Only 4 adult guests, and any related children, permitted during term of STR. Property must contain a minimum square footage of 70 s.f. of usable floor area for one person, and 50 s.f. for each additional guest (including children).

50 Hartford, CT STR Regulation Properties located in single-family zone, or used only for single-family purposes, may only operate STR where owner remains on premises for duration of rental. STRs operated by tenants must obtain express written consent of owner to operate STR. Permit may be revoked if zoning enforcement receives complaints showing use has imposed a nuisance to neighbors.

51 Obtaining an STR Permit in Hartford, CT Zoning administrator may refer zoning permit application to the full Planning and Zoning Commission. Zoning administrator may excuse submission of particular materials by finding they are not applicable to the application at hand.

52 Jersey City, New Jersey

53 Jersey City, NJ STR Regulation Definition: The accessory use of a Dwelling Unit for occupancy by someone other than the unit s owner or permanent resident for a period of less than 30 consecutive days. Permitted as an accessory use in all zoning districts where residential uses are permitted. Owner/lessee may rent out unit as STR. Accessory buildings/structures may be used as STR.

54 Jersey City, NJ STR Regulation No signage permitted in association with STR. STR must not materially disrupt the residential character of the neighborhood. No permit required unless owner/lessee offers more than five separate dwelling units for STR use in the City. Those offering more than five units as STRs must: 1. Obtain a hotel operator license; and 2. Ensure the use is clearly incidental to the principal residential use.

55 Obtaining an STR Permit in Jersey City, NJ Director of Public Safety must inspect properties applying for STR permit. Director has broad discretion to accept and reject applications for STR permit. May reject applications where applicant is found to be unfit to perform the duties thereof by reason of convictions of a crime involving moral turpitude illegal possession or use of drugs or mentally unfit or unsuited by similar or equivalent circumstances for active management of the premises.

56 Nashville, Tennessee

57 Nashville, TN STR Regulation Definition: A residential dwelling unit containing not more than four sleeping rooms that is used and/or advertised for rent for transient occupancy by guests.for not more than 30 continuous days. Maximum Occupancy: Number of guests shall not exceed more than twice the number of sleeping rooms plus four.

58 Permitted as an accessory use in all zoning districts that allow residential use provided a permit is obtained to operate a STR on the property.

59 Nashville, TN STR Regulation No food may be prepared or served to transient guests. No signage permitted. Principal renter must be at least 21 years old. Permit holder is responsible for collecting and remitting room, occupancy and sales tax. Excludes tenancies longer than 30 consecutive days.

60 Nashville, TN STR Regulation No more than 3% of the single-family or detached two-family residential units within each census tract shall be permitted as nonowner occupied STRs. Owner Occupied: The owner of the property permanently resides in the STRP or in the principal residential unit with which the STRP is associated on the same lot.

61 Obtaining a STR Permit in Nashville, TN No person may operate a STR or advertise a residential property for use as an STRP without the owner of the property first having obtained a STRP permit. Application must include: 1. Responsible party s contact information; 2. Proof of insurance not less than $1,000,000 per occurrence; 3. Proof of written notification to neighbors that share a common lot or driveway with STR permit holder.

62 Philadelphia, Pennsylvania

63 Philadelphia, PA STR Regulation Definition: The accessory use of a dwelling unit for temporary rental for occupancy for dwelling, sleeping or lodging. Establishes Limited Lodging, Short Term and Limited Lodging Home uses.

64 Philadelphia, PA STR Regulation Limited Lodging, Short Term The accommodation of visitors conducted in a dwelling unit, the primary use of which is for household living, and where the total accommodations of visitors is for fewer than ninety-one (91) day per year but where the provision of lodging to any particular visitor is for no more than thirty (30) consecutive days. No permit required.

65 Philadelphia, PA STR Regulation Limited Lodging Home The primary resident of the dwelling unit, the main use of which is for household living, and where the total accommodations of visitors provided is for greater than ninety (90) days per year but where the provision of lodging to any particular visitor is for no more than thirty (30) consecutive days. In no instance may limited lodging be provided for more than one hundred eighty (180) days per year.

66 Primary resident may be either the owner of the unit, or a renter who lives in the unit for more than half the year and who is authorized by the owner to operate a STR. Must obtain a use permit to operate a Limited Lodging Home.

67 Philadelphia, PA STR Regulation Booking agent may collect and remit hotel room rental tax on behalf of the STR host. Booking agent must provide host information to City upon request. If unit is not occupied by a primary resident or unit is to be rented more than 180 days per year, must obtain Visitor Accommodations use permit. Primary commercial use that is not permitted most residential zones.

68 Obtaining a STR Permit in Philadelphia, PA Operators of both types of STR must abide by applicable minimum requirements: 1. Only 3 occupants (including the host) who are unrelated by blood, marriage, adoption, or foster-child status, or are not life partners. 2. Must be accessory and secondary to the use of a dwelling unit. 3. Guests of lodgers are only permitted between 8 am 12 am. 4. Primary resident must maintain records for at least one year showing their primary residency, the dates property was used as a STR, and the number of guests who rented the premises.

69 STR Zoning Toolbox Municipalities across the country use various techniques to control impact of STRs: 1. Durational cap on individual tenancies 2. Cap on number of days property may be rented as STR 3. Density controls 4. As of right/special Permit approval 5. Parking requirements 6. Neighbor notification 7. Owner occupancy requirement 8. Distinguish between single family and multifamily neighborhoods

70 Additional Legal Concerns Implications on Affordable Housing Implications on Landlord/Tenant Relationship Implications for Home Insurance

71 Affordable Housing Affordable housing advocates are concerned that STRs are taking apartments off the longterm rental market. Estimates that stock of affordable rental housing in NYC alone would increase 10% if properties in violation of regulations were brought back into rental market.

72 Rents have increased in areas where STRs are most popular. Affordable housing shortage pre-dates spread of STRs. Some municipalities, such as Chicago, IL, have engaged STR providers to help address affordable housing concerns.

73 Landlord/Tenant Relationship Courts have considered several factors in determining whether a person is a transient guest or a tenant, including:» Length of stay;» Existence of a lease or other special contract for the room;» Receipt of mail;» Access to cooking facilities;» Degree of control over the space (does the tenant have their own key to the premises?);» Whether the tenant has another residence;» The extent to which the person has made the dwelling their home for the time being.

74 Home Insurance Insurance may have exclusions for business pursuits of tenants. Airbnb provides host guarantee for property damage, but does not provide liability protection.

75 Conclusion STRs continue to grow in popularity, benefiting property owners and municipalities alike. Whether it is considered a commercial or residential use, towns and cities can implement reasonable regulations to ensure STRs do not negatively impact neighborhoods.

76 For all the materials, go to: